How to Offer Free Shipping the Right Way

Offering free shipping increases conversions, but when it’s done poorly, it can hurt your bottom line.

Do You Really Have to Offer Free Shipping?

Free shipping has been conclusively proven to be the most effective promotional tool an ecommerce website can use to boost sales and traffic.

US ecommerce Sales Growth Chart

Prior to the growth of free shipping options for ecommerce stores, local retailers could counter the “I can get it cheaper online” objection with “Not after you add on the cost of shipping.”

Free shipping has tilted the advantage from local retailers to ecommerce stores.

The steady increase in offerings of free shipping is directly related to the steady expansion of ecommerce sales. According to a study by YCharts, revenue from online shopping expanded from $27.8B in 2Q 2006 to a hefty $97.3B during 2Q 2016.

Free shipping is a placebo of sorts in that it typically fails to provide any significant savings for customers (as providers raise base prices to cover the cost) but nevertheless conversion rates essentially always spike upwards when free shipping is offe

There are many theories centered around why free shipping causes such great success for online retailers and while there doesn’t seem to be a consensus answer, here are a few of the most cited ones:

Why do online sellers who offer free shipping get such great results? Here are some of the most cited reasons:

Consumers are surprise-adverse.

Most customers get turned off by surprise costs and fees and would much rather know the total upfront before they spend time entering information only to be disappointed by a higher total upon checkout, leaving them feeling tricked and as though they have wasted their time.

“Free” is music to customer’s ears.

Online shopping is, first and foremost, about convenience. Shoppers don’t want to waste the time it takes to drive to the store or the money it takes (primarily on gas) to get there. Free shipping is seen as solving both of these dilemmas for online shoppers who are happier paying a higher price for an item online if it means they don’t have to cover the cost of shipping.

Offering free shipping is seen as a gesture of good will by online shoppers.

Free shipping is typically viewed as a generous act by online shoppers leaving them more likely to “return the favor” by giving you their business

Cart abandonment rate is estimated to be 68.8%.

That means on average 7 out of 10 people who go to purchase an item will end up changing their mind. When asked why, 65% of shoppers stated that additional fees (like shipping cost) were the main cause!

Free shipping is the number 1 incentive for online shoppers when choosing where to purchase items.

88% of online shoppers cite free shipping as the top motivator when deciding on where to purchase their goods online.

With the overwhelming amount of evidence pointing to free shipping being an essential offering for storefronts that wish to remain competitive in the online marketplace, the dilemma becomes “how does a company provide free shipping while also remaining profitable?”

The Blueprint to Offering Free Shipping While Remaining Profitable

Too many businesses fall into the trap of offering free shipping without making sure they can afford to do it while remaining profitable. Your goal is to consider free shipping an a path forward to achieving a better return on investment.

It is prudent to test the waters of free shipping before jumping in headfirst. Test it out with promotional offers or certain free shipping offers before offering it full-time.

When done carefully and strategically, free shipping has proven to boost conversion rates, order volume, customer retention, and profitability.

Take a look at our checklist of steps to take as you get started with free shipping:

  1. First Step: Make sure to record your current metrics as a baseline for you to refer to. At the minimum, make sure to monitor conversion rate, order volume, and your net profit. As you set out, you are simply tinkering to see how changes in shipping might affect your profitability.
  2. Second Step: At this point you need to determine which free shipping offers you might want to experiment with. Typically, eCommerce sites start out by experimenting with one of three options: free shipping on all items, free shipping if you spend a certain amount, or free shipping under special conditions, which we will cover later.
  3. Third Step: Pick your free shipping option, monitor and compare the data you receive and then determine if you want to experiment with an alternate offering or if you are happy with the results and ready to begin offering it full time.

 

A Deeper Dive into Free Shipping Variables.

Each situation is unique, and in turn there’s not a right answer when it comes to the way in which you offer free shipping. Here is some additional information about the variety of ways in which you can offer free shipping:

  • (absolute) free shipping – One way to offer free shipping while remaining profitable is to increase your prices in order to cover your costs while others choose to look at volume and calculate how many additional sales they would need to make to make up for the lower margin of profit. This can work in another way in that shipping providers can often lower the cost of their service when you have high volume of sales and more business for them to acquire.
  • Free shipping if you spend a certain amount – This is typically the easiest option as it makes larger volume required and thus lowers the work you have to do to achieve it. Studies have shown that customers who are close to the free shipping threshold will more often add additional items to their cart rather than abandon altogether.
  • Flat rate shipping – While this isn’t “free” shipping it goes a long way to reducing customer anxiety and eliminating any hidden fees or feelings of betrayal. However this option is really geared more to high-end goods as shoppers will be reluctant to pay $5+ shipping on orders that are only $10.
  • Free shipping within a specific location – Another good strategy, especially if lots of your business is localized or at the least within the territorial US is to offer free shipping in areas of high volume while charging for international or long-distance deliveries. Be sure to be upfront and tell customers locational stipulations early in the checkout process.
  • Free shipping with membership – This method is essentially killing two birds with one stone. You are increasing loyalty and accessibility to your customers while offering free shipping in return. You can choose to either offer free membership or membership with a fee – make sure to test first.
  • Free shipping as a promotion – You can use this for specific times of the year (Independence Day, Cyber Monday, Columbus Day, etc) or make it an offer for specific subsets of your customer base.
  • Free shipping on select products – This option works well if you’re trying to sell items that are underperforming or items that lead to future sales, or it works if from your testing you have noticed that only certain items will allow you to remain profitable if offered with free shipping.

 

Form Partnerships with Shipping Companies

As we previously covered, shipping companies may offer discounts when you have large volume of sales, however don’t expect them to come to you offering anything, it is your job to actively seek the best deals possible by speaking with multiple shippers and comparing costs and logistics as well as potentially leveraging companies against each other. Shippers have been known to lower costs by nearly 40% when approached with comparative prices and offers.